Satyam Buyer in a Fix, as Share Price Rises

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Tech Mahindra, the Indian outsourcer that won the bid for majority ownership of embattled outsourcer Satyam Computer Services, may be in a fix following a sharp increase in Satyam's share price.Under the bid agreement in April, Tech Mahindra is offering to buy 20 percent of Satyam equity from shareholders at a price of 58 rupees (US$1.2). This is the price at which it purchased a 31 percent share in Satyam by a preferential issue of new equity.Satyam was plunged into a crisis after its co-founder B. Ramalinga Raju stated in January that the company had inflated revenue and profits for several years.The offer by Tech Mahindra to Satyam shareholders opens Friday and closes July 1. Satyam's shares have however soared on Indian stock markets after the company released on Tuesday unaudited results for the fourth quarter of last year, and for January and February this year. Satyam cautioned that the results were not reliable as they were based on data from their internal MIS (management information system).The figures showed that Satyam's revenue and profits were down in the fourth quarter from a year earlier. But the company posted a larger profit of 520 million rupees in February than in January when it had profits of 40 million rupees. Analysts interpreted the increase in profits as an indication that Satyam is now in a recovery phase.Investors on Indian stock exchanges pushed up the price of Satyam's shares for three consecutive days. The share traded on the Bombay Stock Exchange at 80.85 rupees on Thursday, far higher than the 58 rupees that Tech Mahindra is offering in its open offer to buy shares from Satyam's shareholders.A Tech Mahindra spokesman on Thursday declined to comment on whether the company was planning to hike the price for the public offer.If shareholders refuse to offer their shares for sale at prices lower than the current market price, the other option for Tech Mahindra would be to get to a 51 percent share in Satyam through another issue of preferential equity, say analysts. The bid agreement allows Tech Mahindra to take this route. Satyam on Thursday announced a program to cut staff costs by allowing some of them to take time off on reduced pay. Between 7,000 to 10,000 staff will be affected by the program, the company said. These are staff who have not been deployed on projects for more than three months. A number of Indian outsourcing companies have tried to cut costs during the economic downturn by reducing their "bench," which consists of staff who are not working on projects.

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